I am a senior editor at Forbes and focus mainly on the business of sports and our annual franchise valuations. I also spend a lot of my time digging into what athletes earn on and off the field of play. I've profiled a bunch of athletes that go by one name: LeBron, Shaq, Danica and others. I also head up our biennial B-School rankings, our list of America's Best Small Companies and our annual features on the Best Places for Business (metros, states and countries). I joined Forbes in 1998 after working 3 years at Financial World magazine.

The NHL's Problem: Only Three Teams Are Making Real Money

The NHL locked out its players Saturday night at midnight when its collective bargaining agreement expired. It is the league’s fourth work stoppage in the last 20 years. Like every stoppage, this one is about money and how to divvy up what is now a $3.3 billion pie.

If you are looking for comparisons among sports leagues, think NBA and not NFL, which both had lockouts over the past 14 months. The NFL lockout had only a single preseason game cancelled, while NBA owners lost 20% of their regular season and had to pack in the remaining 80% of games in five months. The NHL is scheduled to begin its regular season October 11 and that date is in serious jeopardy.

The NHL’s problem is the widespread disparity in profits for its 30 teams. We estimated that 18 teams lost money during the 2010-11 season in our annual look at the business of hockey. Several other teams barely eked out a profit, but the league’s most flush teams made a killing. The Toronto Maple Leafs, New York Rangers and Montreal Canadiens had an operating profit (in the sense of earnings before interest, taxes, depreciation and amortization) of $171 million combined. The other 27 NHL teams lost a collective $44 million. If you add the Vancouver Canucks and Edmonton Oilers to the fat cats ledger, profits hit $212 million with the remaining 25 teams posting a loss of $86 million.

The concentration of wealth at the top is similar in the NBA. The three most profitable teams during the 2010-11 season, New York Knicks, Chicago Bulls and Cleveland Cavaliers (a 1-year anomaly where the team sold out its arena with a cut-rate payroll ahead of LeBron James skipping town), earned $167 million. The total represented 96% of the league’s estimated profits of $175 million. The NBA tripled revenue sharing in its new CBA to help prop up small market teams.

Why did the NFL settle with its players before any regular season games were lost? Look at the numbers. The NFL’s richest teams, Dallas Cowboys, New England Patriots and Washington Redskins, earned a staggering $454 million last season. Yet, that total represented just 35% of the NFL’s $1.3 billion in total operating profit. The NFL cut back its supplemental revenue sharing program in its latest CBA. It expects $45 billion in new TV agreements to prop up the low revenue teams and keep their profit margins high.

Baseball is the most equitable major U.S. sports league when it comes to sharing the wealth. No wonder it will have had 21 years of labor peace by the time its current CBA expires in 2016. The top three earners last season, Cleveland Indians, Kansas City Royals and Chicago Cubs, made $87 million, which is only 20% of MLB’s $432 million in operating profit. High-revenue teams like the New York Yankees and Boston Red Sox are content to run baseball operations with small profits, while making a killing through their ownership stakes in the regional sports networks that broadcast their games.

MLB has the heftiest supplemental revenue sharing system with roughly $400 million changing hands last season from the high revenue teams to the low revenue ones. The Yankees alone kicked in $110 million in revenue sharing in 2011.

The NHL is not in dire financial straits as it was in 2004 when a lockout caused the cancellation of an entire season. It does need the top teams to share more of the wealth if it wants to be healthier financially. The league currently shares about $150 million of its revenue and the league has proposed bumping that up to $190 million. The players association is looking for revenue sharing closer to $250 million. We know why the Maple Leafs, Rangers and Canadiens do not want that much revenue sharing. What about the other 27 teams?

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When you mention the Kansas City Royals before the Yankees in terms of operating profit and mention words like “small profit” I have to laugh. So how much did these teams REALLY earn or lose after the deductions and creative accounting? This article is much a sham for exactly the reason the last labor stoppage occurred in the NHL – the players wanted to see the cooked books by NHL owners. Am I somehow to believe that the Los Angeles Lakers, one of the most marketable teams in the world, was somehow just a fraction of a percentage of the NBA operating profit? Anyone who believes numerical analysis of financial statements is a fool as they are complete fraud.

These are Forbes estimates on the financials and not team reported figures. KC made a ton of money last year because they had a $40 million payroll and received a revenue sharing check north of $30 million. The Yankees spent almost $230 mil in payroll and luxury tax and kicked in $110 million into the revenue sharing pool. That is how the Royals produce higher profits. The Lakers will make a ton when their new cable deal kicks in, assuming they don’t spend like crazy. For the 10-11 season their payroll and luxury tax was $110 million, which is twice as high as many teams.

Unfortunately, people do not understand Revenue vs Profits. Even though you described it nicely in your post.

I really think one of the problems with the NHLPA is the players might not understand this either.

Looking at forbes stats in 2005 vs 2011, the league is not making a whole lot more than it was in terms of profit. This is why the league needs to redefine HRR and or % of revenue.

Canadian dollar has gone up, which helped rise the revenue of Canadian teams tremendusly. Also, with Social media, larger market teams have become much more popular and helping those teams get better sponsors to help get revenue. While the lower 1/2 of teams are not seeing such an increase in revenues, but with Player expenses, they can’t turn a profit anymore.

I really like forbes to give out the facts. please continue to do so. Hopefully all those trying to bash people without using their brains will realize a little something about business.

Joel: Thanks for the comments. The gap between the haves and have nots in hockey has really grown with the improvement in the CDN dollar. The next CBA deal will need to include greater revenue sharing, as well as players taking a smaller % of revenue if the league wants all 30 teams to have a chance to be financially healthy.

Good article. Only wish it could have included more about what both sides are actually asking for in these negotiations. A little bit heavy on the how it’s like other sports angle. But I do understand that it is a 2nd tier sport in the US and most aren’t aware of the issues.

Betteman has to go – and soon. He keeps trying to create martkets where none exist. NHL teams in smaller cities will lose interest even more lest two could be moved to healthy Canadian cities dying for a Franchise.

Those teams suffered because they were playing in antiquated arenas in small markets when the Canadian dollar was worth much less than it is today. A strong Canadian dollar allows Canada to support at least 1 or 2 more NHL franchises if not more.